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Deciding contractual consequences of builds in advance

Deciding contractual consequences of builds in advance

While most builds proceed relatively smoothly, given the complexity of projects and the importance of the correct construction sequencing, delays are always possible. So it’s best to accept this and agree in advance which causes of delay are permissible, how much delay is acceptable, and how much money will be deducted from instalments when delays occur, and include these factors in the build contract.

Force Majeure

Events beyond the control of the yard are known as force majeure events and these may or may not be defined by law. When they are not, the parties need to ensure that all possibilities are covered and decide what their effects will be.

Typically, the contractual delivery date will be extended, but the parties will need to clarify whether this is in reference to the number of days the force majeure event continued or the affect it had on the project’s critical path. And even when a delay is caused by a force majeure event, such latitude should be subject to a cap. so that the point where ‘enough is enough’ is clear.

The exception to this will be delays due to modifications ordered by the buyer.

Buyer modifications

While there is a temptation to simply discuss modifications, as this is more convenient, cost overruns and disproportionate delays may result in changes being made to a yacht’s design and/or specifications.

Modification procedures must be clear and adhered to. Numerous changes may also start to affect the yard’s other projects, so it may want terms in the contract to stipulate that such modifications will only take effect if it agrees to the proposed adjustment to the contractual price and delivery date.

The yard may also want to reserve a right of refusal if other projects would be affected, and additional payments may also be required. Clearly a yard could be put in an overly dominant position if such a clause is not well drafted.

Delivery on completion

Sorting matters out with a yard after the final instalment has been paid can be especially difficult, so it is crucial that all the correct documents relating to legal title are presented before payment is made. Otherwise the new yacht cannot be registered and will not be allowed to sail anywhere. The place of delivery may also have tax implications, and must be agreed upon.

At the point of delivery, the yacht should not only function and appear as envisaged but it should meet all the relevant classification society and flag state regulations, especially if it is going to be chartered.

Build contracts should not only allow access to the yard for the buyer’s representative, but also for reasonable tests and inspections, as well as allowing any necessary access to subcontractors’ and suppliers’ premises. The representative should also be allowed to require the yard to rectify evident faults immediately.

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